The market reacted to a new war but thanks to the Fed’s talk about being done with higher interest rates, stocks rallied. Not to be conspiratory about that, isn’t it coincidental that the Fed was out Monday talking no more rate hikes, and the bank leaders were out last week talking ‘financial accidents’, and this week interest rates are lower, the dollar is lower, and stocks are rising? I know crazy, isn’t it? The NASDAQ 100 index made it through the first level of resistance closing above $366. The SP 500 added to the move above 4300. Crude jumped higher on the war and comments from OPEC that they expect oil demand to rise despite the comments from economists about neutral demand due to green initiatives. I tend to side with OPEC on this as we are not near neutral use of crude despite wishful thinking. Support held the last four days and consolidated and found enough will to push higher to end last week. That upside momentum continued on Monday as we watch how this all unfolds. Is this the start of the year-end rally? Time will tell but for now, it was as expected and we watch what opportunities are worth the risk short term. A quick look at the charts shows consolidation at support over the last two weeks and a bounce to the upside. Energy led the upside move on the day based on the rise in crude prices. It was a solid day for stocks as all eleven sectors closed in positive territory. The VIX index closed higher based on early activity during the trading day. Treasury markets were closed due to the government holiday, but TLT was up more than 2% anticipating interest rates to decline on Tuesday. Economic data remains weaker overall. We are willing to take what the market gives both up and down. I would expect more upside short term along with some volatility relative to geopolitics and economic outlook.
Volume was average on the day. Monday’s activity was a result of a new war and Fed talk. This only adds to the complexity of the outlook for global economics, domestic economics, and uncertainty. There is still plenty of work to be done for the upside to gain momentum. The S&P 500 index closed up 0.6%. The NASDAQ was up 0.4%. The SOXX was down 0.2%. Small Caps (Russell 2000) were up 0.5%. The ten-year treasury yield was unchanged with the bond market closed. Crude (USO) was up4%. (UGA) was up 2%. Natural gas (UNG) was up 1.8%. The dollar was down 0.0.3%. We are focused on managing the risk in the current environment.
ONE Chart to Watch: QQQ – 1) Tested support at $354.10 again and bounced. 2) Offered entry at $356.80. 3) TQQQ trade $35. Stop $35. 4) Closed above the first resistance at $366. Let it play out with stops in place.
Additional Charts to Watch:
Retail Stores – EMTY breaking higher as commercial real estate for retail stores struggles with plenty of distressed sales and bankruptcy issues in play. Short side entry was taken. Entry $15.25. Stop moved to $16.85.
XRT, IGV, SOXX, XLE, XLB – consolidation patterns in place… looking for a bounce. XLE gapped open and didn’t add position on added risk. IGV bounced and added $346.50 on Monday. SOXX added $475 on Friday.
Stops Hit: None
Quote of the Day: “All the world’s a stage and most of us are desperately unrehearsed.'” – Sean O’Casey.
Sector Rotation and the S&P 500 Index:
The S&P 500 index closed up 27 points to 4335 moving the index up 0.63% with average volume on the day. The index added to the move back above the 4300 level after holding support. Eleven of the eleven sectors closed higher on the day with energy as the leader up 3.3%. The worst performer of the day was financials up 0.06%. The VIX index closed at 17.7 moving slightly higher on the day. Upside bounce in play. Will the buyers follow through? The Fed talking no interest rate hikes added to the momentum.
XLB – Basic Materials moved lower and found support at the $77 level. Held and bounced to end the week. The sector was down 0.7% for the week. No Positions.
XLU – Utilities accelerated lower and found support at the $56 level… bounced. Watch for follow-through upside. The sector was down 2.8% for the week. Bottom reversal…
IYZ – Telecom reversed lower again test support at $20.50 level. Remains in a downtrend. The sector was down 2.4% for the week. No Positions. Bottom reversal…
XLP – Consumer Staples accelerated lower and added to the losses for the week. Remains in a downtrend. The sector was down 3.1% for the week. No Positions.
XLI – Industrials downtrend remains in play but did find some support at $99. Watching how the bounce plays out. The sector was down 0.6% for the week. No Positions. Bottom reversal…
XLV – Healthcare downtrend in play with $127 near-term support. Managed to bounce the last three days. The sector was up 1% for the week. No Positions. IBB was key to the bounce. Bottom reversal…
XLE – Energy tested this week back to the 200-day MA. Crude was down sparking profit-taking in the stocks. The sector was down 5.1% for the week. No Positions. Gapped higher on crude oil prices.
XLK – Technology The sector held support at $161.50… consolidated and bounced to break high. The sector was up 2.6% for the week. Bottom reversal…
XLF – Financials traded down to $32.30 support held… then bounced. The sector was down 0.4% for the week. Banks struggle with higher interest rates hurting assets on their balance sheet. Bottom reversal…
XLY – Consumer Discretionary found support at $151.15 and held, remains in a consolidation pattern near the current lows. The sector was down 0.2% for the week. No Positions. Retail (XRT) chart moving lower as stocks show weakness. Bottom reversal…
IYR – REITs found support at the $75 level and bounced slightly. Higher interest rate worries and downside talk on defaults rising in commercial real estate. The sector was down 1.7% for the week. No Positions. Bottom reversal…
Summary: The index added to the upside Monday with the Fed talk on rates. The new war leaves plenty of questions for discussion. Bounce-off support starts the rally talks from the talking heads. Watching how this handles the bounce and if the sentiment shifts. The banks talk financials accident, the Fed talks no more interest rate hikes, the dollar declines, interest rates decline, and stocks rally. Sounds a lot like collusion to me… if we were a company and did this what would happen? I know it is all about saving the system that is, but can we make it less obvious? The talk is the year-end rally… watching to see what unfolds near term. The index moved to previous lows… tested and bounced. Remember two things; first, the trend is your friend, and second, don’t fight the Fed.
(The notes above are posted at the end of each week based on activity from the previous week’s trading. The BOLD/ITALIC comments are the current-day changes worthy of note.)
KEY INDICATORS/SECTORS & LEADERS TO WATCH:
The NASDAQ index closed up 53 points to 13,484 as the index was up 0.39% for the day. Buyers showed up again to bounce off support at 12,977. Added to the move back above the 13,275 mark helps the outlook near term. The downtrend from the July highs is still in play.
NASDAQ 100 (QQQ) was up 0.51% for the day as the mega caps did well on the day. Testing the $353.80 support and bounced and added to the bounce. The sector had a positive bias for the day with 63 of the 100 stocks closing in positive territory for the day. Watching… AAPL bottoming pattern reversal (added $174.35)… AMZN found support and consolidation pattern… GOOG moved above the 50-day MA (added $135.65)… META consolidation pattern (added $307.50)… NFLX closed above $375 support… MSFT consolidating (added $320). Added TQQQ. entry $35. Stop $36.25.
Semiconductors (SOXX) The sector closed above the $473 level of support and looking for a follow-through on the upside move. The sector was up 1.3% for the week. Added SOXL entry $473.25. Dropped early but closed near the highs of the day.
Software (IGV) The sector closed above the $335 support level and added to the upside to end the week. The sector was up 2.1% for the week. Added IGV entry $340. Solid upside follows through.
Biotech (IBB) The sector remains in a downtrend but did find some support at the $119 level. The move was enough to add a position in LABU entry $3.50. The sector was up 0.1% for the week. Struggled on the day but closed above the $121.30 level.
Small-Cap Index (IWM) Found support after breaking lower last week and showed a modest bounce. The sector was down 2.1% for the week. No Position. Bottom reversal…
Transports (IYT) downtrend remains in play and found some support to close back above the $231 support level. Closed below the 200-day MA. The sector was down 0.8% for the week. No positions.
The Dollar (UUP) The dollar moved lower for the week as it remains in the uptrend. The dollar was up 0.03% for the week. More chatter about losing dollar status globally as BRIC nations establish gold-backed currency. No Positions. Topping pattern… expect some downside near term.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.78% up from 4.57% last week. TLT was down 4.4% for the week. Watching how the Fed manages the yield curve. Moved higher on the week which will likely get the Fed in motion behind the scenes. No Positions. Raised stop on TMV. TLT up with bond market closed… yields expected to move back near 4.5%
Crude oil (USO) Crude showed some topping on the chart last week… it followed through moving lower and looking for support near term. USO was down 8.2% for the week. No Positions… watching for the opportunity to buy. Crude gapped higher on war and OPEC comments.
Gold (GLD) The commodity accelerated lower and finally bounced on Friday. The metal was down 1% for the week. Looking for the upside trade near term. Gapped higher on global worries.
Our longer-term view remains neutral as the upside trend from the October lows was broken confirming the short-term downside in play and a negative for long-term positions. Nothing goes straight down or up… there are always positive and negative swings in a longer-term trend. A look at the daily chart from the October lows validates exactly that premise with plenty of volatility along the way. With the trend broken, it puts the broad indexes in an intermediate limbo awaiting confirmation… the last nine weeks’ the micro-trend has tested the longer-term trend and we need to manage stops accordingly on longer-term positions. The topping patterns broke short-term support to create micro-term downtrends that moved lower to support. The economic data is showing signs of fatigue relative to growth. Seeing some oversold sectors short term as some found support and tried to bounce. We look to charts and fundamentals for some answers. The key remains, know where you are now, know what is happening now, and know what is on the horizon… act accordingly. The goal is to manage the risk of positions, take what is offered… short or long, and then manage your money. Listen to the market not the talking heads.
Monday: Indexes held support after early selling and closed higher on the day. The SP500 and NASDAQ closed higher on the day. Things went according to plan on the day as the Fed talked interest rates, banks talked ‘financial accidents’, a new war, lots of global bravo about everything, and plenty of uncertainty looking forward. The end result was adding to Friday’s upside move. Sector leaders were interesting with energy leading the day. Sector laggards remain the same with several testing intraday again. Interest rates are anticipated to move lower on Fed talk. Economic data is confirming the ugly outlook. I would expect the data to remain negative with the only real caveat being how negative it will be. We have put money to work short term based on the technical moves and we continue to manage risk and take what the markets give.
What I am watching:
SOXX leadership looking forward? Inside day on Monday… looking for a show of strength. Added the position on Friday and looking to add to that position on follow-through.
Gold (GLD/UGL) has been selling and remains in a downtrend from the May highs. $168 support is currently in play and I am looking for some relief in the form of buyers. $175 target on the bounce. Looking to see how this unfolds near term. Finally bounce on Friday… UGL entry $51.25. Stop $50.62… low risk trade. Speculation bounce on Monday helps the cause.
Crude Oil (USO/UCO) is down 7.1% in the last two days. Broke the uptrend line from the July lows. Looking for a bounce back to $77.30 on USO. Patience as it unfolds. Held Friday continue watching in light of Isreal/Hamas conflict. Gapped higher on Monday 4%.
Biotech (IBB/LABD) sold to $119 support breaking the March lows in the process. Bounce at the support with MRTX spiking higher on news. Watching to see if this has any follow-through near term with the sector in an oversold state technically. $127 target. Followed through for the bottom reversal. Entry LABU taken $3.50. Stop $3.36. Small test on Monday.
Seasonal selling? September and October are seasonal periods where selling historically occurs… question being, is this a seasonal sell-off or is there more at play currently? Things are definitely not rosey relative to the data and the economic outlook, but from a pattern perspective, the indexes are still holding support. Small Caps (IWM) is ugly but at the support of the April/May lows. SP500 and NASDAQ at the previous lows as support. Thus patience is called for as the current patterns unfold. A year-end rally is not out of the question no matter how negative things look. Remember logic applies long-term to markets, emotions control the short term.
GBTC… upside favored. (Added $18.61.) Need to clear $30. Tested Monday.
Economic Data: CPI, PPI due next week and they will be watched by the Fed and everyone else.
Geopolitics: Hamas/Isreal conflict will impact the globe with plenty at stake.
Mortgage demand is at the lowest levels since 1996… applications fell 6% last week alone. Bank stocks will get hit by this over time.
Selling in the Airbnb space is rising. Rentals are down and thus, can’t pay the mortgage, so sell the property. ABNBtesting support at $123.50… double top on the chart.
Credit card usage dropped again last week by 11.3% versus down 10.9% the prior week. Think MA, AXP, and V stock prices.
Banks talk ‘financial accident’. Goldman Sachs stated shorts on stocks and the market are as strong now as they were in March 2020. That makes for an interesting scenario relative to the markets being oversold short term… but what about the longer term view? They were out again on Monday warning about a “financial accident” if rates continue to climb towards 7% Fed Funds Rate. Yes, the leaks of what we have been saying for a while, are finally making the airwaves… not a good situation for investors or consumers. Watching… BAC, GS, JPM, MS… bounce into year-end, and then it could get ugly.
Decide what you’re doing before the market opens based on your beliefs. Entry. Exit. Target. Define the risk of the position. Nothing more… Nothing less.
“Vision without action is a daydream… Action without vision is a nightmare.” Japanese proverb
The goal of these notes is to allow you, the investor, to learn how to see the market development as the progression through the sector develops based on news, speculation, and data. Data drives long-term results and develops trends… speculation and news are short-term drivers and offer higher-risk trading opportunities. Through the use of both technical and fundamental data, we can have greater confidence in our trading strategies with a disciplined approach to investing and managing the risk of our money.